How is estate duty calculated on joint accounts?

June 10, 2007

YOUR PERSONAL ADVISER: FINANCE

How is estate duty calculated on joint accounts?


Q IF A deceased person had a joint bank account with someone, is the cash balance considered for estate duty on a 50 per cent basis?

Also, what is the treatment of cash withdrawn from the account before the reporting of death?

A CO-OWNERSHIP of any property, movable or immovable, can take one of two forms: a joint tenancy, where the co-owners are referred to as joint tenants; or a tenancy-in-common, where they are known as tenants-in-common.

In a tenancy-in-common, each co-owner's share in the property is predetermined and known from the very start, for example, a half or a quarter.

The most significant and important difference between the two types of co-ownership is that, in a joint tenancy, there is a right of survivorship after the death of a co-owner. The remaining survivors take the deceased person's share and, eventually, the last and sole survivor takes all.

In contrast, a tenant-in-common can pass on his share by way of a will or according to the rules of intestacy.

A co-owner who wants to pass on his interest in the property and not let the surviving co-owner take all, should sever the joint tenancy, thereby converting it into a tenancy-in-common.

In the case of a joint bank account, the right of survivorship would also apply where the mandate to the bank allows any of the parties to operate the account.

The usual 'either or' mandate would enable the survivor to take all the monies in the account as his.

However, the executor or administrator of the estate of the deceased must still account for such joint bank accounts in the estate duty documents that he must file with the Commissioner of Estate Duties.

The account balance as at the date of death is declared. Hence, any monies drawn by the deceased during his lifetime are excluded.

The liability to pay the estate duty would depend on who contributed to the funds in the bank account. If the deceased had contributed, and in the absence of a gift, his share of the contribution would be liable to estate duty.

In short, estate duty is payable proportional to the contribution of the deceased.

In some cases, the deceased might have declared himself a trustee of the joint bank account, that is, he was holding the monies in name only, without enjoying any benefit. In such cases, even if he had contributed towards the funds, no estate duty is payable.

Similarly, no estate duty is payable if the deceased had merely lent his name as trustee and made no contributions to the account.

Amolat Singh
Lawyer
Amolat & Partners

Advice provided in this column is not meant as a substitute for comprehensive professional advice. E-mail questions to [email protected]